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Free Tesco Plc and Sainsbury Plc Essay Sample

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Two companies have been selected for the financial ratio analysis namely Tesco Plc and Sainsbury Plc. Both these companies operate major retail network in the UK and internationally. Four useful financial ratios that have been selected for this analysis include current ratio, debt to equity ratio, net profit margin and return on equity. The values of these ratios calculated for both companies based on the financial data provided in their latest annual reports for year ending 2010 are provided in the following table:

 

 

Tesco Plc

Sainsbury Plc

 

2010

2009

2010

2009

Current Ratio

                              0.71

                              0.74

                              0.64

                              0.54

 

11,392/16,015

13,081/17,595

1797/2,793

1570/2,919

Debt  to Equity Ratio

                              2.13

                              2.53

                              1.19

                              1.29

 

(16,015+15,327)/14,681

(17,595+15,063)/12,906

(2,793+3,096)/4,966

(2,919+2,738)/4,376

Net Profit Margin

4.10%

3.97%

2.93%

1.53%

 

2,336/56,910

2,138/53,898

585/19,964

289/18,911

Return on Equity

15.91%

16.57%

11.78%

6.60%

 

2,336/14,681

2,138/12,906

585/4,966

289/4,376

 

Date Source: (Tesco Plc; Sainsbury Plc.)

Discussion:

From the above table, major findings can be drawn regarding the financial position of both companies under review. Both companies have current ratio values lower than one which implies that both companies have current liabilities greater than their current assets and they can both face problems if their current obligations become due shortly. However, Tesco has better liquidity position compared to Sainsbury.

The solvency position of both companies is evaluated via calculation of debt to equity ratio which clearly shows that Tesco has high debt to equity ratio as compared to Sainsbury. This implies that Tesco is relying heavily on external financing to meet its operational and long term business requirements. Thus, Sainsbury has stronger solvency position in comparison to Tesco.

The profitability of both companies is determined using two ratios. The findings suggest that both companies are operating at low profit margins. Although both companies have shown little improvement in the year 2010 but the position still remains weak. Moreover, it could be stated that Tesco is performing better than Sainsbury for generating profits from its operations. Finally, the return to shareholders is determined by ROE. As it can be seen, Tesco is performing far better than Sainsbury for creating return for its shareholders. Its ROE is at 15.91% in 2010 (2009: 16.57%) whereas that of Sainsbury is only 11.78% in 2010 (2009:6.60%).  Overall, Tesco has stronger profitability position.

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